If This Pace Keeps Up, Israel's Home Prices Will Rise by 20% This Year

After a 15% price increase in the past year, February home sales showed no sign of slowing prices

Hadar Horesh
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A housing development in Modi'in.
A housing development in Modi'in.Credit: Gil Cohen-Magen
Hadar Horesh

For the second month in a row, housing prices increased at an annualized 20 percent pace in February: Prices increased 1.8 percent for a second month in a row.

Prices are up 15.2 percent for the past 12 months, and the pace has increased in recent months.

Annual change in price of homes.

An increase of 1.8 percent increase means that a 2-million-shekel apartment ($620,000) now costs 36,000 shekels more, a sum equal to three average monthly salaries. This means buyers will likely take out a mortgage that much higher, which also translates to an extra 18,000 shekels in interest payments split over 20 years. Thus, potential home buyers are torn between rushing to buy an apartment at current prices or signing up for a lottery for subsidized housing.

Contracts for new homes are generally linked to the index of housing inputs; when the index increases, people who have signed a contract but not yet paid for or received their home owe that much more. The housing inputs index rose 6.6 percent for the past year, a considerable sum, but still less than the increase in home prices.

The spike in home prices is likely due to the drop in investments in neighborhood and infrastructure development during 2019-2020, when the government was paralyzed by repeated elections and the absence of a state budget. The government’s resumption of activity last year will affect the market only in 2023. The year 2022 is apparently “lost” in terms of moderating home prices by boosting supply.

Over the last year, contractors increased the sale of unbuilt apartments, which increased supply and counteracted rising prices at the expense of future supply.

The price of new homes increased by a record 5.1 percent for the months of January-February, reflecting a market dominated nearly exclusively by sellers, with developers setting prices as they pleased. Claims by contractors that this was a result of an increase in the housing input index were unsupported by numbers released by the Central Bureau of Statistics, which showed housing price increases far in excess of the rise in building costs.

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